Apple, Amazon squeeze costs out of latest tablets

SAN FRANCISCO—Apple's iPad Mini and Amazon's Kindle Fire HD both carry bill of materials (BoM) costs that allow for higher initial profit margins compared to previous tablet offerings from Apple and Amazon, according to teardown analyses performed by market research firm IHS iSuppli.

An entry-level iPad Mini carries BoM costs of $188 and another $10 in manufacturing costs, bringing the total to build each unit to $198—not including additional expenses such as software, licensing royalties and other expenditures—according to IHS. The entry level iPad Mini retails for $329. Based on the ratio of cost to retail price, the iPad Mini is slightly more profitable on a percentage basis than the comparably equipped version of the new iPad when it was released in March, according to IHS. (UBM TechInsights performed a detailed teardown of the iPad Mini last week).

After initially losing money on every original Kindle Fire after the tablet first came out, Amazon reduced the BoM costs significantly in the updated Kindle Fire HD, according to IHS. The firm estimates that the low-end Kindle Fire HD carries a BoM cost of about $165, plus another $9 in manufacturing costs. The low end Kindle Fire HD retails for $199.

By contrast, according to IHS, the original Kindle Fire was estimated to carry a combined $201.70 BoM and manufacturing cost when it was first introduced. That product also retailed for $199 at the time. Amazon's stated goal has been to break even on the Kindle Fire tablet hardware, allowing the firm to turn a profit on the content that users buy from Amazon.

“Amazon’s strategy with the Kindle Fire HD 7-inch tablet is not really to make money on the hardware itself,” said Andrew Rassweiler, senior principal analyst of teardown services for IHS, in a statement. "Rather, the idea is to create a product at a compelling price point and then get a lot of consumer traction in order to put Amazon content and the Amazon online store into consumer' hands."

By reducing the BoM cost off the second-generation Kindle Fire, Amazon has reduced the hardware subsidy that the firm must pay to get the device into people's hands, Rassweiler said.